Advertising on Tv
Competition for Viewers and Advertisers in a TV Oligopoly
Hans Jarle Kind Norwegian School of Economics and Business Administration Tore Nilssen University of Oslo Lars Sørgard Norwegian Competition Authority
Abstract We consider a model of a TV oligopoly where TV channels transmit advertising and viewers dislike such commercials. We show that advertisers make a lower profit the larger the number of TV channels. If TV channels are sufficiently close substitutes, there will be underprovision of advertising relative to social optimum. We also find that the more viewers dislike ads, the more likely it is that welfare is increasing in the number of advertising financed TV channels. A publicly owned TV channel can partly correct market distortions, in some cases by having a larger amount of advertising than private TV channels. It may even have advertising in cases where advertising is wasteful per se.
JEL classification: L82, M37 Keywords: Television industry; Advertising
Correspondence should be sent to Tore Nilssen, Department of Economics, University of Oslo, P.O.Box 1095 Blindern, NO-0317 Oslo, Norway. E-mail: tore.nilssen@econ.uio.no. We are grateful to Steve Wildman, three anonymous referees, and seminar participants in Antwerp, Helsinki, and Milan for helpful comments. We would like to thank the Research Council of Norway (the KIM program) for its financial support through SNF Institute for Research in Economics and Business Administration. Kind would like to thank CESifo in Munich for excellent working conditions while revising this work.
1
Competition for Viewers and Advertisers in a TV Oligopoly
The TV industry is important both in terms of the time people spend watching TV and the amount of advertising it transmits.1 However, advertising-financed channels are potentially a mixed blessing. On the one hand, TV commercials may be the most efficient way for firms to advertise their products and can generate a surplus both for individual firms
Hans Jarle Kind Norwegian School of Economics and Business Administration Tore Nilssen University of Oslo Lars Sørgard Norwegian Competition Authority
Abstract We consider a model of a TV oligopoly where TV channels transmit advertising and viewers dislike such commercials. We show that advertisers make a lower profit the larger the number of TV channels. If TV channels are sufficiently close substitutes, there will be underprovision of advertising relative to social optimum. We also find that the more viewers dislike ads, the more likely it is that welfare is increasing in the number of advertising financed TV channels. A publicly owned TV channel can partly correct market distortions, in some cases by having a larger amount of advertising than private TV channels. It may even have advertising in cases where advertising is wasteful per se.
JEL classification: L82, M37 Keywords: Television industry; Advertising
Correspondence should be sent to Tore Nilssen, Department of Economics, University of Oslo, P.O.Box 1095 Blindern, NO-0317 Oslo, Norway. E-mail: tore.nilssen@econ.uio.no. We are grateful to Steve Wildman, three anonymous referees, and seminar participants in Antwerp, Helsinki, and Milan for helpful comments. We would like to thank the Research Council of Norway (the KIM program) for its financial support through SNF Institute for Research in Economics and Business Administration. Kind would like to thank CESifo in Munich for excellent working conditions while revising this work.
1
Competition for Viewers and Advertisers in a TV Oligopoly
The TV industry is important both in terms of the time people spend watching TV and the amount of advertising it transmits.1 However, advertising-financed channels are potentially a mixed blessing. On the one hand, TV commercials may be the most efficient way for firms to advertise their products and can generate a surplus both for individual firms
References: 4 See also the work by Anderson and Coate (2005), who do a welfare analysis in such a Hotelling-style setting See Motta and Polo (1997) for a survey of the media industry in Europe. See Armstrong (2005) and Armstrong and Weeds (in press) for some recent discussions on public service broadcasting. See also Anderson and Coate (2005). 20 There are several studies of mixed oligopoly, see for example De Fraja and Delbono (1989) and Cremer, Marchand, and Thisse (1991)